Since our Real Money column on Equifax (EFX) ran in early October, EFX is down about 3%.
While the data breach story is falling out of the news cycle, I still believe there may be longer-term fallout from the data breach.
How Can You Not Hate Equifax Shares?
Oct. 3, 2017 1:00 PM EDT
As a value investor, I admit to having "dumpster-diving" tendencies when it comes to investment selection. I will buy bruised and battered companies that few others will touch, if I believe that the markets have punished them beyond what is deserved. If a name gets hit hard, and selling pressure is heightened, I just might be interested. If there's a good backstory, asset base, or other redeeming, unrecognized or unacknowledged qualities that should overshadow a bad quarter, reduced guidance, or some other event that send investors to the sidelines, I may be a buyer.
This can be a very risky strategy, because it can lead to the purchase of "value traps," "falling knives," "dog with fleas" or insert your favorite euphemism that describes a company in distress. Ultimately, what I am looking for here is the "fifty-cent dollar." When these work, the rewards are more than financial, when they don't, it can be very painful.
The market provides us with plenty of possibilities. The "fallen angel" we hear about most these days (ad nauseam) is Equifax (EFX) , whose data breach may have compromised millions of Americans. Indeed, Equifax's former CEO Richard Smith testified Tuesday before Congress about the hack and the company's response.
Word of the Equifax breach sent EFX shares down as much as 37% over a five-day period between Sept. 8 and Sept. 14, as consumers scrambled to find out if they may have been affected, froze their credit reports and/or signed up for free credit monitoring courtesy of Equifax (an irony in itself -- we are supposed to trust the monitoring services of the company whose data was breached?).
While the shares have recovered somewhat since this debacle hit the news cycle, they are still down about 25%.
Lest you think I've loaded up on EFX shares, due to the potential overreaction, let me assure you that I have not, and would not touch this name with a 10-foot pole. I believe this situation gets worse before it gets better, and the optics, including a CEO who may walk away with millions, and uncertainty as to when the breaches were actually discovered, have been terrible.
There's so much that we still don't know about this data breach and the effects could linger for years. Tax-filing season could be interesting, as the risk of fake tax returns being filed has likely increased. The fact is, we don't know what we don't know. Meanwhile, as more information is released, as politicians feign concern about the issue in order to "protect" us, and as the lawsuits mount, it's anyone's guess what happens to the company. I sure don't see it as a bargain.
Frankly, I'm a bit surprised that EFX is a $108 stock and not a $56 stock at this point. Earnings misses are one thing, but they don't cause a good portion of the population to have to go online, or make phone calls, in order to see whether they may have personally been affected, take steps to prevent potential fallout, and then worry about whether their information has been compromised.
I don't know if this the knockout punch for EFX or not, but I believe things could get much worse for the stock.